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IMF raises growth predictions amidst protectionism fears

The International Monetary Fund has raised its global growth forecast for this year but also warned protectionist policies could undermine a modest recovery.

It now expects 3.5% global growth in 2017, up from January’s 3.4% forecast. Its forecast for 2018 is now 3.6%.

Maurice Obstfeld, the IMF’s chief economist said: “The global economy seems to be gaining momentum – we could be at a turning point. But even as things look up, the post–world war two system of international economic relations is under severe strain despite the aggregate benefits it has delivered – and precisely because growth and the resulting economic adjustments have too often entailed unequal rewards and costs within countries.”

The IMF also revised up its UK growth forecast for the second time in three months after admitting that the performance of the economy since the Brexit vote last year had been stronger than expected. It said the challenge now for the UK is to successfully navigate the exit and trade deals. The adverse medium-term impact on growth would be lower if the two years of negotiations avoided putting up new economic barriers.

In its half-yearly World Economic Outlook, the IMF said it now envisaged the British economy expanding by 2% in 2017 – making it the second fastest-growing advanced economy after the US. Growth is expected to slow to 1.5% in 2018 – slightly weaker than the IMF’s previous prediction.

“The 0.9 percentage point upward revision to the 2017 forecast and the 0.2 percentage point downward revision to the 2018 forecast reflect the stronger-than-expected performance of the UK economy since the June Brexit vote, which points to a more gradual materialisation than previously anticipated of the negative effects of the United Kingdom’s decision to leave the European Union."

The IMF was also more cautious about the longer-term impact on the economy from Brexit than it was in the run-up to last June’s referendum.

“Though highly uncertain, medium-term growth prospects have also diminished in the aftermath of the Brexit vote because of the expected increase in barriers to trade and migration, as well as a potential downsizing of the financial services sector amid possible barriers to cross-border financial activity.”

Its US growth forecasts for 2017 - of 2.3% and 2.5% in 2018 - are unchanged.

The 19 countries in the Eurozone are expected to achieve modest growth thanks to the weaker euro and accommodative fiscal policy such as low interest rates.

The IMF thinks there will be 1.7% growth this year in the region, unchanged from last year’s performance and easing to 1.6% in 2018.